Upon a sale by A of leased land to a non-arm’s length corporation (Corporation A) in which A did not hold any shares, A and Corporation A agreed to a redistribution of income in which Corporation A undertook to pay to A all the related rental income. Would s. 56(2) apply? After finding that the rentals received by Corporation A would be included in its income under s. 56(4) (so that the amount otherwise included in the income of A under s. 9 would be excluded from A’s income), CRA went on to state:
[A] shareholder of Corporation A could have been directed to give the right to income to A at a value less than its fair market value. …[T] he shareholder may have desired to benefit A. Thus, all the criteria for taxation of the shareholder of Corporation A under subsection 56(2) may be satisfied if the right to income was not disposed of for consideration equal to its fair market value.